Currently, there is no method in use by which a lottery may activate single instant tickets and track their sales in real time. Consequently, lottery instant ticket retailers cannot be charged for what they have sold. Rather, they must be charged using one or more different methodologies employed by different lottery agencies from around the world. Regardless of methodology, the end result is a tremendous accounting margin of error that creates exposure to fraud and malfeasance. Typically current methodology requires the use of modified accrual accounting rather than the accrual accounting method mandated for comparable (sales over $5 million/year), non-government businesses.
Aside from a number of other issues resulting from this shortcoming, a major problem is the fact that a lottery's inability to charge a licensed retailer for exactly what they have sold (thus necessitating the use of modified accrual accounting) the great number of different sales tracking and accounting methodologies presents a barrier to distribution of instant lottery tickets through larger, national chain retailers (or any retailer with $5M or more in annual sales). Often such retailers require, to comply with Generally Accepted Accounting Principles, a single consistent tracking, verification, and accounting system for sales. Thus, such large retailers generally are unwilling or unable to manage or accept the many lotteries' different tracking and accounting techniques for instant lottery tickets, which often are greatly varied and inconsistent.
Upon sale of an instant, scratch-off ticket, lottery retailers must record the individual transaction for the purpose of tracking inventory and lottery invoicing. A small percentage of retailers use barcode scanners in combination with a point of sale system to scan a Universal Product Code (UPC) barcode printed on the rear surface of every scratch-off ticket. This scan records the sale in the retailer's point of sale system. This data allows the retailer to track his or her own inventory, their total sales, and after performing additional calculations (specific to each lottery), derive their financial liability to the lottery. Retailers without a point of sale system use either a paper journal to hand-write sales records or disregard sales tracking altogether. In either event, none of this sales data is communicated back to the lottery's main computer system, and the lottery is forced to estimate sales while charging their retailers an amount that is not consistent with the retailers' actual sales. Consequently, the retailer becomes the party responsible for maintaining their actual sales and inventory data.
Therefore, using the current methodology accepted by most lotteries across the world, to the lottery, the sale of an individual scratch-off ticket is at best only assumed to have occurred. Whether the lottery is estimating sales based on a limited amount of data derived through the gaming system (relative to instant tickets) or by performing a physical inventory count using a hand-held scanner (used in conjunction with the central gaming system and the gaming system's inventory data), the time of an actual sale of any specific ticket is not known—only surmised.
Usually, each lottery has a central gaming system (aka the “gaming system,” “central gaming system,” or “central computer system”). Typically, the lottery's central gaming system is a computer-implemented system for accounting for lottery ticket sales and otherwise conducting the functions of the lottery. The central gaming system includes memory devices for storage of the master data set that contains the authentication (identification) data for each of the instant lottery tickets, and contains the validation data (i.e., whether a particular ticket is associated with a prize, and if so, the value of the prize). In some instances, the central gaming system is an in-house computer-based system that is owned and operated directly by a lottery. In other instances, the central gaming system is owned and operated by a contractor hired by the lottery. In either situation, the central gaming system's database can be divided such that its operations are controlled by separate servers, possibly housed at separate locations. For example, for security reasons, servers operating and maintaining an authentication database might be housed and operated separately from servers operating and maintaining a validation database.
On a typical instant scratch-off lottery ticket, the lottery prints three codes. A representative example of a scratch-off lottery ticket 1 is shown in FIGS. 1 and 2. First, as described above, there is a UPC barcode 13 that is displayed, usually on the rear surface 11 (back side, see FIG. 2) of the ticket 1. The UPC barcode 13 contains information identifying the lottery game. Usually a unique UPC barcode 13 is assigned to each different game, and all of the tickets for playing that particular instant lottery game have the same UPC barcode 13 printed on them. It is noted that “code” and “barcode” as used in this disclosure may be interpreted preferably interchangeably and preferably in reference to typical known code formats currently in use on lottery tickets, including 2D barcodes, QR codes, and similar known types of codes or barcodes.
Second, there is also displayed on the ticket 1, typically on its rear surface 11 (back side, see FIG. 2), an “authentication code,” which is usually in the form of a barcode or QR code. The authentication code 12 is unique to the particular lottery ticket. The authentication code 12 contains unique identifying information (i.e., authentication data) pertaining to that ticket that, when scanned by a barcode reader and transmitted to the lottery's central gaming system, can be matched up to a corresponding record in the master data set in the database of the central gaming system. Typically, the record in the master data set in the database would contain all information relative to that lottery ticket (i.e. the name of the game, the sale price, the prize associated with that specific ticket, etc.) as well as any transactions processed through the system relative to that specific ticket. Using the equipment made available to them, scanning the displayed authentication code 12 does not, however, reveal to the lottery retailer or player any data. On the other hand, when a winning ticket is presented at a lottery claim center, when scanned, the lottery's internal system can derive all information in the master data set.
The third code printed on a typical scratch-off lottery ticket 1 is a “validation code,” designated with reference numeral 5 in FIG. 1. The validation code 5 typically is contained within a game play area 3 on the ticket 1, usually on the front surface 2 of the ticket 1. The game play area 3 contains game play information that is concealed under a coating 4 before play of the ticket 1. Typically, the coating 4 is formed of latex or other suitable material that is scratched off by the player to reveal the game play area 3 after the player has purchased the ticket. This game play area 3 contains all of the information required to actually play the lottery game. In most tickets used today, the game play information contains game play symbols 7 relating to the particular game being played. These symbols are readable by the player after the coating 4 is scratched off, e.g., a set of letters or numerals that must be matched to a winning combination in order for the player to win a prize. The sample ticket 1 in FIG. 1 shows the coating 4 partially scratched off to show a partially scratched off portion 10 of the game play area 3 revealing the validation code 5 and a number of game play symbols 7.
In most scratch-off instant lottery tickets used today, the game play area 3 under the coating 4 also contains the validation code 5. This validation code 5, typically a barcode, contains coded information identifying the unique identity of the ticket associated with prize information specific to that ticket that is stored within the master data set stored in the central gaming system's computer. The unique identifying information contained within the validation code 5 is used to “validate” a ticket, that is, to check to see if the ticket is a winner or loser. After the latex coating 4 is scratched off this validation code 5, the code 5 is scanned by a scanning machine connected to the central gaming system. The scan identifies the unique identifying information contained in the validation code 5 on the ticket. The system reconciles the information against a data set stored in the central gaming system that contains prize information for each ticket, and sends a communication back to the point-of-sale (POS) machine to convey that prize information to the retailer or player. The validation code 5 is typically reconciled against a secondary data sheet in the lottery's central gaming system, which also contains instructions that get conveyed to the retailer or player at a retail location (e.g., “$5 Win,” or “Please visit lottery claim center” which may signal that a large prize is to be collected by the player at the claim center). This is the validation process.
Under current, typical instant ticket sales practices, once a ticket is validated (that is, confirmed to be a winning or losing ticket), the lottery then is forced to assume that all tickets from the same pack with a lower numerical value have also been sold. This requires that tickets be sold sequentially. This practice also does not capture and account for non-validated tickets that were sold after the most recently validated ticket. Therefore, this practice cannot accurately track instant ticket sales at any given point in time. With the majority of lotteries selling a large number of different instant ticket games (up to 100 different games in some lotteries), combined with the fact that there may be thousands to tens of thousands of retailers selling these tickets, for any and almost every lottery, millions of dollars if not tens of millions of dollars are continuously unaccounted for.
Under the current methodology, when retailer inventory needs to be adjusted, it is incumbent upon the retailer or the lottery sales agent responsible for the retailer to determine when and what tickets to order. If the retailer determines that more instant tickets are required, through a variety of different methods, the retailer places an order through the lottery for those additional tickets. This order usually involves the retailer calling a 1-800 number and placing an order with a lottery sales agent. Some lotteries enable their sales agents to manage retailer inventory using sales force automation software, but its capabilities are limited by the information collected by the lottery. Since the lottery cannot track real-time sales, the software cannot fully automate inventory; it can only estimate inventory levels.
Once an order of instant tickets is placed, “inactive” tickets are then shipped to the retailer. Inactive tickets are recorded in the main database in the central gaming system but players are not eligible to claim a prize associated with an inactive ticket until that ticket has become active for play (this is to prevent unsold tickets from being played or having any value associated with them). As such, prior to placing the pack of new tickets up for sale, the retailer must login to the lottery's existing POS gaming system, direct it to record an activation, and finally, scan to activate the pack (for example, by using a built-in scanner on the lottery POS system to scan a barcode on the wrapper of the pack). At this point, assuming the electronic transaction was processed accurately, the entire pack of instant tickets becomes active and for all intents and purposes, at this point, each ticket becomes a bearer instrument. As such, the tickets now become a liability for the retailer, in that, if tickets are stolen and the theft goes unknown to the owner of the lottery retail location, then the licensed retailer is liable for the price of that ticket.
In order for the lottery to derive sales and determine how much to charge each retailer through a recurring bank account sweep, lotteries are forced to use the “pack settlement” method (which simply means tracking sales on a pack basis rather than on an individual ticket basis). This method often uses one or more triggers (based on the limited amount of ascertainable information a lottery has at a given time with respect to instant ticket activity) to record the sale and charge the retailer for an entire pack of activated tickets.
One of the most common methods involves a time trigger. Under this method, once a book of instant tickets has been activated, after a set time period regardless of sales volume, that book of tickets will “settle” and trigger the retailers' financial liability and the lottery's record of sales for all tickets in that pack regardless of how many were sold. This means a retailer could activate a 30-pack of $30 tickets, sell none but still be charged (and the lottery record as a sale) the full $900. Alternatively, a retailer could activate and sell thousands of dollars of tickets during this time frame without 1) the lottery knowing the sales occurred 2) being financially liable for the tickets for some time (so the lottery is “floating” their instant ticket inventory. As is often the reality in these cases, the retailers may use lottery revenues for their own benefit until they need to reimburse the lottery. Often times, this results in a retailer not having sufficient funds to cover their liabilities and the retailer is either penalized or loses their license as a result).
Another method may involve using validation data (the number of winning tickets scanned to check for a prize from a given pack) to make a best guess at the retailer's sales/financial liability and therefore trigger a settlement (example: 90% of the lower-tiered prizes in a pack have been validated/sold and the pack therefore settles). By knowing how many tickets of a particular game are contained in a pack, the lottery uses validation data to surmise that all tickets with unique ID numbers lower than the validated ticket (at the same retailer) were sold. Both methods create uncertainty for the retailer and the lottery because there will always be tickets that have sold but not settled or settled without being sold. Either way, the lottery's sales and inventory data is inaccurate.
Generally, at present, the main method used by lotteries to address the lack of real-time sales tracking capability and the subsequent accounting, security and operational control issues is to sell instant tickets through instant ticket dispensing machines. Although such machines are widely used by lotteries around the world, self-service dispensing machines bridge a gap rather than filling one. They allow lotteries limited access to retailers that are unwilling or unable to sell instant tickets through the traditional channels, however there are a number of limitations.
With respect to fraud, because they have access to activated but unsold instant tickets, lottery retailers and/or their employees may attempt to determine if an instant ticket is a winning ticket prior to sale in order to separate winning tickets from losing tickets. After the winning instant tickets are identified, the retailer may then sell the losing tickets to lottery customers while retaining the winning tickets to be purchased by themselves (if retailers are permitted to play) or an accomplice. One commonly used method of perpetrating this type of fraud involves the retailer removing the least amount of scratch-off material necessary in order to identify whether or not the ticket is a winner.
The shortcomings of the present methodologies result in 1) an inability on behalf of the respective lottery, to know within a reasonable timeframe when an instant ticket was sold, 2) an inability on behalf of the respective lottery to determine if an instant ticket has been tampered with before it has been sold (e.g., inability to conduct a check to see if someone tampered with the latex coating 4 to show whether the ticket was a winning ticket, before purchasing it), 3) an inability on behalf of the respective lottery to manage inventory and individual retailer product mix in a timely, automated manner, 4) unknown financial liability on behalf of the lottery retailer which can result in an inability to collect funds due from the retailer, 5) unknown prize liability on behalf of the lottery itself 6) retailer inventory is subject to theft, 7) an inability on behalf of all lotteries and their retailers that sell instant, scratch-off tickets to use accrual accounting, 8) multiple opportunities for fraud, 9) an inability to use sales data to support marketing and advertising campaigns and 10) an extremely arbitrary accounting method that ultimately precludes lotteries from selling through retailers bound by accrual accounting.
Combined, these shortcomings result in four major deficiencies in the current system: 1) wildly inaccurate sales numbers, 2) an inability to satisfy GAAP accounting practices, 3) an inability to identify and curb basic tampering and fraud (on behalf of players and the lottery itself), and 4) for an individual lottery, millions if not billions of dollars of lost sales every year due to sales practices that prevent sales of instant lottery tickets through retailers that generate over $5 million in annual sales.